Wall Street’s Rap Sheet Tells a Harrowing Story

There’s a serial killer on the loose.

This heartless criminal is slaughtering nations left and right.

For two decades, it’s been feasting on unsuspecting governments.

With each victim, its power grows.

And now, it’s at our front door.

The first reported crime occurred in 1982. That was the year when Mexico defaulted on its debt. For over two decades, Mexico and its Latin American neighbors had been borrowing money from American banks to finance their growing economies. The 1960s was a good time to be a finance minister south of the Rio Grande. Governments were flush with cash from the economic boom, largely financed by loans. When inflation drove U.S. interest rates into the double digits, Latin American governments found themselves with whopping interest payments. By the 1980s, they simply stopped paying the bills. Lenders fled, and a massive financial crisis swept through the region.

But interest rates eventually came back down, and the lenders returned. Again banks like Goldman Sachs lent money to the Mexican government, and again investors panicked. In 1994, another financial crisis struck Mexico and — in a so-called “tequila effect” — spread to Brazil. This time, the American government stepped in. Treasury Secretary Robert Rubin, who used to be the Co-Chairman of Goldman Sachs, engineered a $20 billion bailout that saved his old firm’s ass.

Meanwhile, on the other side of the world, the “East Asian miracle” was lapping up the money that was spilling out of Latin America. Hong Kong, Singapore, South Korea, and Taiwan — the “Four Asian Tigers,” they were called — were industrializing faster than any country ever before, and Wall Street was more than happy to slake their thirst for investment funds with the cool liquid of debt. Until, of course, the bubble burst. In 1997, it became clear that investors had been too optimistic and asset prices had gone too high, especially in real estate. Lenders ran for the exits, and the local economies took a bloodbath.

When the “East Asian miracle” turned into the “East Asian crisis,” investors started to question all their foreign holdings, especially the loans they made to the Russian government. Just to be safe, they fled Russia too, leaving the Kremlin no choice but to default on much of its debt. The shockwave rippled all the way to Wall Street, where the mammoth hedge fund Long-Term Capital Management nearly crumbled from a bet gone bad. Their bankruptcy probably would have brought down the global economy, had the big American banks not stepped in and bailed them out.

These titans of Wall Street were hardly daunted by this near-death experience. First, they plowed their money into the American stock market and then, when that tanked at the turn of the century, into the American housing market. This too fell, and with it, the global economy.

But that was not all they bet their chips on. Led by Goldman Sachs yet again, the American banks spread their money across Europe — trading with hedge funds in Iceland, buying up mortgages in Spain, and yes, funding a widening budget deficit in Greece. When the bubbles burst, tax revenues plummeted, and governments started running out of money. Without central banks to buy their bonds, several countries ran the risk of defaulting on their debt. But the powers-that-be didn’t want that. They wanted the big banks to be repaid. So they took it out on the workers, slashing government spending and making the recession worse.

Only one culprit has been present at all of these crime scenes. It doesn’t take a detective to see that Wall Street has been duping naïve borrowers into excess debt time and time again, only to get away with it and strike again in a new location. In fact, after each conquest, the American banks found themselves bigger and more powerful, systematically demolishing the regulations that had prevented them from such predatory behavior since the 1930s.

In recent years, we have developed an unhealthy habit of blaming the borrower, but there are two parties in every financial contract — and the lender is almost always the more experienced, more sophisticated, and more powerful of the two.

For far too many years, we have allowed our banks to run roughshod over the world. And now, while our nation grinds through high unemployment and Europe suffers through worse, the Republicans have the inexplicable gall to nominate a Wall Street tycoon as their presidential candidate. To these thugs, I say: Leave us alone. Haunt us no more. Haven’t you done enough?

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This op-ed was published in today’s South Florida Sun-Sentinel.

Excuse Me? Would You Please Repeat That?

by Norman Horowitz

Mitt Romney is an “off the cuff” disaster. I can only wonder what he would say were he to become our President.

I believe that Romney was trying very hard to communicate something very important when he said the following:

“Corporations are people, my friend…of course they are. Everything corporations earn ultimately goes to the people. Where do you think it goes? Whose pockets? Whose pockets? People’s pockets. Human beings, my friend.”

“I like being able to fire people who provide services to me.”

“I’m not concerned about the very poor. We have a safety net there.”

“I should tell my story. I’m also unemployed.”

“There were a couple of times I wondered whether I was going to get a pink slip.”

I can understand a mistake or two when discussing such complex issues as global warming or the federal budget, but these comments qualify as a genuine “Good grief!”

Just for fun, let’s take a trip down memory lane. My favorite “off the cuff” disaster was Vice President Dan Quayle, whose quotes put Mitt Romney’s to shame. Here are some of his classic moments:

“If we don’t succeed, we run the risk of failure.”

“Republicans understand the importance of bondage between a mother and child.”

“Welcome to President Bush, Mrs. Bush, and my fellow astronauts.”

“Mars is essentially in the same orbit… Mars is somewhat the same distance from the Sun, which is very important. We have seen pictures where there are canals, we believe, and water. If there is water, that means there is oxygen. If oxygen, that means we can breathe.”

“The Holocaust was an obscene period in our nation’s history. I mean in this century’s history. But we all lived in this century. I didn’t live in this century.”

“I have made good judgments in the past. I have made good judgments in the future.”

“The future will be better tomorrow.”

“We’re going to have the best-educated American people in the world.”

“We have a firm commitment to NATO; we are a part of NATO. We have a firm commitment to Europe. We are a part of Europe.”

“I am not part of the problem. I am a Republican.”

“I love California; I practically grew up in Phoenix.”

“It’s wonderful to be here in the great state of Chicago.”

“A low voter turnout is an indication of fewer people going to the polls.”

“When I have been asked during these last weeks who caused the riots and the killing in L.A., my answer has been direct and simple: Who is to blame for the riots? The rioters are to blame. Who is to blame for the killings? The killers are to blame.”

“Illegitimacy is something we should talk about in terms of not having it.”

“We are ready for any unforeseen event that may or may not occur.”

“For NASA, space is still a high priority.”

“Quite frankly, teachers are the only profession that teach our children.”

“It isn’t pollution that’s harming the environment. It’s the impurities in our air and water that are doing it.”

“[It’s] time for the human race to enter the solar system.”

“The American people would not want to know of any misquotes that Dan Quayle may or may not make.”

“Verbosity leads to unclear, inarticulate things.”

“I stand by all the misstatements that I’ve made.”

I continue to wonder why the United States of America is unable to find better candidates for high office than Dan Quayle or Mitt Romney. Where have we as a nation failed?

The Myth of the Lazy Poor

On his recent trip to Israel, Mitt Romney attributed the poverty of the Palestinians to their “culture,” citing the work of economic historians David Landes and Jared Diamond. Middle East experts have rightly denounced Romney’s remarks as racist, ignorant, and untrue. Jared Diamond himself took to the op-ed page of the New York Times to set the record straight: “That is so different from what my book actually says that I have to doubt whether Mr. Romney read it.”

This kind of claim is common among our political elite. We regularly hear accusations against the “culture of poverty” on our own shores, ranging from the famous Moynihan Report in 1965 to the so-called “welfare queen” that Ronald Reagan created to get elected. The inverse is equally common. Peruse your local bookstore, and you’re bound to find half a dozen authors attributing the rapid growth of China (or, a few years ago, Japan) to their unique Eastern brand of capitalism.

But these stereotypes — good and bad — are hardly ever true, as proven by this excerpt from Cambridge development economist Ha-Joon Chang’s eye-opening book Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism:*

Having toured lots of factories in a developing country, an Australian management consultant told the government officials who had invited him: “My impression as to your cheap labor was soon disillusioned when I saw your people at work. No doubt they are lowly paid, but the return is equally so; to see your men at work made me feel that you are a very satisfied easy-going race who reckon time is no object. When I spoke to some managers they informed me that it was impossible to change the habits of national heritage.”

This Australian consultant was understandably worried that the workers of the country he was visiting did not have the right work eithic. In fact, he was being quite polite. He could have been blunt and just called them lazy. No wonder the country was poor — not dirt poor, but with an income level that was less than a quarter of Australia’s.

The country in question…was Japan in 1915. It doesn’t feel quite right that someone from Australia (a nation known today for its ability to have a good time) could call the Japanese lazy. But this is how most westerners saw Japan a century ago.

In his 1903 book, Evolution of the Japanese, the American missionary Sidney Gulick observed that many Japanese “give an impression…of being lazy and utterly indifferent to the passage of time.” Gulick was no casual observer. He lived in Japan for 25 years (1888-1913), fully mastered the Japanese language, and taught in Japanese university. After his return to the US, he was known for his campaign for racial equality on behalf of Asian Americans. Nevertheless, he saw ample confirmation of the cultural stereotype of the Japanese as an “easy-going” and “emotional” people who possessed qualities like “lightness of heart, freedom from all anxiety for the future, living chiefly for the present.” The similarity between this observation and that of today’s Africa, in this case by an African himself — Daniel Etounga-Manguelle, a Cameroonian engineer and writer — is striking: “The African, anchored in his ancestral culture, is so convinced that the past can only repeat itself that he worries only superficially about the future. However, without a dynamic perception of the future, there is no planning, no future, no scenario building; in other words, no policy to affect the course of events.”

After her tour of Asia in 1911-1912, Beatrice Webb, the famous leader of British Fabian socialism, described the Japanese as having “objectionable notions of leisure and a quite intolerable personal independence.” She said that, in Japan, “there is evidently no desire to teach people to think.” She was even more scathing about my ancestors. She described the Koreans as “12 millions of dirty, degraded, lazy, and religionless savages who slouch about in dirty white garments of the most inept kind and who live in filthy mudhuts.”

This was not just a western prejudice against eastern peoples. The British used to say similar things about the Germans. Before their economic take-off in the mid-19th century, the Germans were typically described by the British as “a dull and heavy people.” “Indolence” was a word that was frequently associated with the Germanic nature. Mary Shelley, the author of Frankenstein, wrote in exasperation after a particularly frustrating altercation with her German coach-driver: “the Germans never hurry.” It wasn’t just the British. A French manufacturer who employed German workers complained that they “work as and when they please.”

The British also considered the Germans to be slow-witted. According to John Russell, a travel writer of the 1820s, the Germans were a “plodding, easily contented people…endowed neither with great acuteness of perception nor quickness of feeling.” In particular, according to Russell, they were not open to new ideas; “it is long before [a German] can be brought to comprehend the bearings of what is new to him, and it is difficult to rouse him to ardor in its pursuit.” No wonder that they were “not distinguished by enterprise or activity,” as another mid-19th century British traveler remarked.

Germans were also deemed to be too individualistic and unable to cooperate with each other. Once again, compare this with a comment by the African observer that I quoted above: “African societies are like a football team in which, as a result of personal rivalries and a lack of team spirit, one player will not pass the ball to another out of fear that the latter might score a goal.”

British travelers in the early 19th century also found the Germans dishonest — “the tradesman and the shopkeeper take advantage of you wherever they can, and to the smallest imaginable amount rather than not take advantage of you at all… This knavery is universal,” observed Sir Arthur Brooke Faulkner, a physician serving in the British army.

Ever since the East Asian economic “miracle,” it has become very popular to argue that it was Confucian culture that was responsible, at least partly, for the region’s economic successes. Confucian culture, it was pointed out, emphasizes hard work, education, frugality, cooperation, and obedience to authority.

But, before the East Asian economic “miracle,” people used to blame Confucianism for the region’s underdevelopment. For Confucianism does have a lot of aspects that are inimical to economic development.

Confucianism discourages people from taking up professions like business and engineering that are necessary for economic development. At least in theory, individual peasants could gain entry into the ruling class if they passed the competitive civil service examination (and they occasionally did). Artisans and merchants, however, were not even allowed to sit for the examination.

To make matters worse, the civil service examination only tested people for their scholastic knowledge of the Confucian classics, which made the ruling class scornful of practical knowledge. Scholar-bureaucrats were supposed to live in “clean poverty”…and thus they actively looked down upon money-making.

Confucianism also discourages creativity and entrepreneurship. It has a rigid social hierarchy and, as I have noted, prevents certain segments of society (artisans, merchants) from moving upwards. This rigid hierarchy is sustained by an emphasis on loyalty to superiors and deference to authority, which breeds conformism and stifles creativity.

We can perform the same exercise with any culture’s belief system. Take the case of Islam.

Muslim culture is today considered by many to hold back economic development.

Alternatively, we could say that, unlike many other cultures, Muslim culture does not have a fixed social hierarchy… Therefore, people who work hard and creatively are rewarded. Moreover, unlike in the Confucian hierarchy, there is no disdain for industrial or business activities. Muhammad, the Prophet, was a merchant himself. And being a merchant’s religion, Islam has a highly developed sense of contracts… This orientation encourages the rule of law and justice — Muslim countries had trained judges hundreds of years before Christian countries. There is also an emphasis on rational thinking and learning — the Prophet notably said that “the ink of the scholar is more sacred than the blood of the martyr.” This is one of the reasons why the Arab world once led the world in mathematics, science, and medicine.

All this is not to deny that how people behave makes a difference to economic development. But the point is that people’s behavior is not determined by culture.

People from rich countries routinely believe that poor countries are poor because their people are lazy. But many people in poor countries actually work long hours in backbreaking conditions. What makes them appear lazy is often their lack of an “industrial” sense of time. When you work with basic tools or simple machinery, you don’t have to keep time strictly. If you are working in an automated factory, it’s essential. People from rich countries often interpret this difference in sense of time as laziness.

It is true that there are a lot more people “lazing around” in poor countries. But is it because those people culturally prefer lounging about to working hard? Usually not. It is mainly because poor countries have a lot of people who are unemployed or underemployed (i.e., people may have jobs but do not have enough work to occupy them fully). This is the result of economic conditions rather than culture. The fact that immigrants from poor countries with “lazy” cultures work much harder than the locals when they more to rich countries proves the point.

As for the once much-vaunted “dishonesty” of the Germans in the past, when a country is poor, people often resort to unethical, or even illegal, means to make a living. Poverty also means weak law enforcement, which lets people get away with illegal behavior, and makes breaking the law more “culturally” acceptable.

“Living for today” or being “easy-going” — words that many people associate with Africa and Latin America nowadays — are also the consequences of economic conditions. In a slowly changing economy, there is not much need to plan for the future; people plan for the future only when they anticipate new opportunities (e.g., new careers) or unexpected shocks (e.g., a sudden inflow of new imports). Moreover, poor economies offer few devices with which people can plan for the future (e.g., credit, insurance, contracts).

In other words, culture changes with economic development. It would be far more accurate to say that countries become “hardworking” and “disciplined” (and acquire other “good” cultural traits) because of economic development, rather than the other way around.

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*This excerpt has been lightly edited to accommodate American spellings and this blog’s punctuation style.